Publication 15-B Employer'S Tax Guide To Fringe Benefits

5) A dependent child or spouse of any individual listed

see the special rules for certain demonstrator cars and

in (1) through (4) above.

qualified nonpersonal-use vehicles discussed below.

However, instead of excluding the value of the working

A tuition reduction for graduate education qualifies for

condition benefit, you can include the entire annual lease

this exclusion only if it is for the education of a graduate

value of the car in the employee’s wages. The employee

student who performs teaching or research activities for

can then claim any deductible business expense for the

the educational organization.

car as an itemized deduction on his or her personal income

For more information on this exclusion, see Pub. 520,

tax return. This option is available only if you use the lease

Scholarships and Fellowships.

value rule (discussed in section 3) to value the benefit.

Working Condition Benefits

Demonstrator cars. All of the use of a demonstrator car

by your full-time auto salesperson generally qualifies as a

This exclusion applies to property and services that you

working condition benefit if the use is primarily to facilitate

provide to an employee so that the employee can perform

the services that the salesperson provided for you and

his or her job. It applies to the extent that the employee

there are substantial restrictions on personal use. For

could deduct the cost of the property or services as a

more information and the definition of “full-time auto sales-

business expense or depreciation expense if he or she had

person,” see Regulations section 1.132-5(o).

paid for it. The employee must meet any substantiation

requirements that apply to the deduction. Examples of

Qualified nonpersonal-use vehicles. All of an

working condition benefits include an employee’s use of a

employee’s use of a qualified nonpersonal-use vehicle is a

company car for business and job-related education pro-

working condition benefit. A qualified nonpersonal-use ve-

vided to an employee.

hicle is any vehicle that the employee is not likely to use

This exclusion also applies to a cash payment that you

more than minimally for personal purposes because of its

provide for an employee’s expenses for a specific or prear-

design. Qualified nonpersonal-use vehicles generally in-

ranged business activity for which a deduction is allowable

clude all of the following vehicles.

to the employee. You must require the employee to verify

•

that the payment is actually used for those expenses and

Clearly marked police and fire vehicles.

to return any unused part of the payment.

•

Unmarked vehicles used by law enforcement officers

For information on deductible employee business ex-

if the use is officially authorized.

penses, see Unreimbursed Employee Expenses in Pub.

•

529, Miscellaneous Deductions.

An ambulance or hearse used for its specific pur-

The exclusion does not apply to the following items.

pose.

•

Any vehicle designed to carry cargo with a loaded

A service or property provided under a flexible

gross vehicle weight over 14,000 pounds.

spending account in which you agree to provide the

•

employee, over a time period, a certain level of un-

Delivery trucks with seating for the driver only, or the

specified noncash benefits with a predetermined

driver plus a folding jump seat.

cash value.

•

A passenger bus with a capacity of at least 20 pas-

•

A physical examination program that you provide,

sengers used for its specific purpose.

even if mandatory.

•

School buses.

•

Any item to the extent that the employee could de-

•

Tractors and other special-purpose farm vehicles.

duct its cost as an expense for a trade or business

other than your trade or business.

Pickup trucks. A pickup truck with a loaded gross vehi-

cle weight of 14,000 pounds or less is a qualified

Employee. For this exclusion, treat the following individu-

nonpersonal-use vehicle if it has been specially modified

als as employees.

so that it is not likely to be used more than minimally for

•

personal purposes. For example, a pickup truck qualifies if

A current employee.

it is clearly marked with permanently affixed decals, spe-

•

A partner who performs services for a partnership.

cial painting, or other advertising associated with your

•

trade, business, or function and meets either of the follow-

A director of your company.

ing requirements.

•

An independent contractor who performs services

for you.

1) It is equipped with at least one of the following

items.

Vehicle allocation rules. If you provide a car for an

a) A hydraulic lift gate.

employee’s use, the amount that you can exclude as a

working condition benefit is the amount that would be

b) Permanent tanks or drums.

allowable as a deductible business expense if the em-

c) Permanent side boards or panels that materially

ployee paid for its use. That is, if the employee uses the car

raise the level of the sides of the truck bed.

for both business and personal use, the value of the work-

ing condition benefit is the part determined to be for busi-

d) Other heavy equipment (such as an electric gen-

erator, welder, boom, or crane used to tow auto-

ness use of the vehicle. See Business use of your car

under Personal Expenses in chapter 1 of Pub. 535. Also,

mobiles and other vehicles).

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Publication 15-B Employer'S Tax Guide To Fringe Benefits - 2003 Page 16

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